Home  /  Capital Market  /  Efficient

Efficient Capital Market

An efficient capital market is a market where the share prices reflect new information accurately and in real time. Capital market efficiency is judged by its success in incorporating and inducting information, generally about the basic value of securities, into the price of securities.
This basic or fundamental value of securities is the present value of the cash flows expected in the future by the person owning the securities. The fluctuation in the value of stocks encourage traders to trade in a competitive manner with the objective of maximum profit.

This results in price movements towards the current value of the cash flows in the future. The information is very easily available at cheap rates because of the presence of organized markets and various technological innovations. An efficient capital market incorporates information quickly and accurately into the prices of securities.

In the weak-form efficient capital market, information about the history of previous returns and prices are reflected fully in the security prices; the returns from stocks in this type of market are unpredictable.
In the semistrong-form efficient market, the public information is completely reflected in security prices; in this market, those traders who have non-public information access can earn excess profits.

In the strong-form efficient market, under no circumstances can investors earn excess profits because all of the information is incorporated into the security prices.

The funds that are flowing in capital markets, from savers to the firms with the aim of financing projects, must flow into the best and top valued projects and, therefore, informational efficiency is of supreme importance. Stocks must be efficiently priced, because if the securities are priced accurately, then those investors who do not have time for market analysis would feel confident about making investments in the capital market.

Eugene Fama was one of the earliest to theorize capital market efficiency, but empirical tests of capital market efficiency had begun even before that.

More Information in Capital Market
Primary Market Secondary Market Primary Vs Secondary Market
Global Capital Market Capital Market Companies Capital Market Reform
Venture Capital Market Capital Market Transactions Capital Market Line
Capital Market Services Capital Market Securities Capital Market Liberalization
Secondary Infrastructure Fund Capital Market Risk Capital Market Integration
Capital Market Instruments Equity Capital Market Efficient Capital Market
Debt Capital Market Capital Market Consultants Capital Market Conditions
Market Regulation Committee Capital Market Assumptions Capital Market Trends
Capital Market Theory Role Of Capital Market Risk Advisor
Capital Market Regulations Capital Market Investment Capital Market Research


Last Updated on : 5th July 2013

About Us // Terms & Copyright // Disclamer // Privacy Policy // Surfing Agreement // Feedback // Sitemap

© copyright 2013-2014 finance.mapsofworld, ALL RIGHTS RESERVED
Compare Infobase Limited